How to build a recession proof portfolio in the Indian context ?


I have to admit that this is not a perfect scenario but something which i found by trial and error is the best recession proof portfolio.

I recommend mutual funds over buying shares reason being a more diversified approach reduces risk and also the fall on a recession or unforeseen.

Though you would be wondering what's there to discuss in investing if its just mutual funds involved just finding any mutual fund is enough right as risk is already managed .

That could be right but will be long term investment positive but on a short term and for people who cannot get the kick to invest if they see there investments falling below market rates then building a recession proof portfolio comes into play .

So how do we build one in the Indian Context ?

Ideally find a few funds with your AMC, in this case I am choosing the funds with SBI AMC and ICICI AMC  in the below criteria

Low Risk Strategy  - (Cannot see fund value going down for more than 6 months )

  • Historical High Growth funds (Banking) - Allocation - 15 %
  • Historical High Growth funds (Technology ) - Allocation - 15 %
  • Index Funds -Nifty Recommended -Allocation - 15 % (Nifty 10 %, Sensex 5 % )
So 30 % funds are allocated to the High Risk High Growth segments and 15 % are aligned to market spread .
  • Gold funds - 10 % (Invest in gold bonds )
  • Gilt funds - 5 % (Change to 35 % in case of recession scenario from the Medium term )
  • Medium Term debt funds - 40 % (Change to 10 % on a recession scenario )
55 % funds allocated to the Low Risk segment but by correctly switching between gilt and gold on high recession times can ensure even returns .

High Risk Strategy (Take risks for unto 1 year - 2 yrs ) Portfolio change in medium (-8 %)

  • Historical High Growth funds (Banking) - Allocation - 51 %
  • Historical High Growth funds (Technology ) - Allocation - 11 %
  • Index Funds -Nifty Recommended -Allocation - 13 % (Nifty 7 %, Sensex 6 % )
  • Gilt funds - 6 % 
  • Medium Term debt funds - 3 % 
  • Balanced funds - 17 %

Overall investment allocation have to follow the age thumb rule. If your age is 30 years you should have 70 % ideally in equity and 30 % in fixed deposits .

A Low Risk Strategy is to follow a 60 % fixed deposit 40 % equity rule .
At the times of Recession change the rule to inverse that is 40 % in fixed deposit and 60 % in equity .
Enter the equity market in a staggered manner during recession like on a monthly basis to take advantage of rupee cost averaging.

As the recession gets over and growth returns do a gradual return by decreasing your equity allocation either by stopping contribution to equity or withdrawing the equity profits into fixed deposits.

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